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# tutorial4questions - period using graphs Suppose we are in...

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EC2102 Macroeconomic Analysis I Tutorial 4, Week 8 (March 7-11, 2011) Suppose we have an in°nitely-lived representative °rm which has a production tech- nology of Y t = z t F ( K t ; N t ) = z t K a t N 1 ° a t , a > 0 , t = 1 ; 2 ; ::: This °rm is owned by an in°nitely lived representative consumer who receives dividends from this °rm. The real rate of interest rate prevailing in the economy for the °rst period is r 1 . ( i ) What are the marginal products of labour and capital in time period t; MPN t , and MPK t respectively ? ( ii ) Write down the °rm±s maximization problem in the °rst period, derive the °rst order conditions, and explain the economic meaning of the F:O:C:s . Suppose we have an in°nitely-lived representative consumer who values both leisure and consumption. Let his per period utility function be u ( C t ; l t ) = ln ( C t ) + ln ( l t ) , t = 1 ; 2 ; :: . Let his discount factor be °: ( iii ) Write down his maximization problem in time period 1, and derive the F:O:C:s . ( iv ) When is this economy with a representative consumer and a representative °rm in a competitive equilibrium?
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Unformatted text preview: period using graphs. Suppose we are in an equilibrium as described and illustrated in part ( iv ) : In time period 1, labour market equilibrium is ( w ± 1 ;N ± 1 ) , and the goods market equilibrium is ( r ± 1 ;Y ± 1 ) : Let us now introduce a government, who neither spends, nor taxes. However, it likes to enact laws. Let us suppose that the government decides to impose a minimum wage w m 1 at the start of time period 1. ( v ) If the minimum wage w m 1 < w ± 1 , derive the new output supply curve b Y s 1 by varying period 1±s interest rate, as we did in the lecture. How would the equilibrium in the labour and goods markets change? ( vi ) If the minimum wage w m 1 > w ± 1 , derive the new output supply curve b Y s 1 by varying period 1±s interest rate, as we did in the lecture. How would the equilibrium in the labour and goods markets change? 1...
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